Scribd
Upload
24 views36 pages

Enron Scandal

Uploaded by

Daniyal Bilal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
24 views36 pages

Enron Scandal

Uploaded by

Daniyal Bilal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 36

 BUSC51F20S033 Isha Akram

 BUSC51F20S021 Fahad Tariq


 BUSC51F20R028 Saba Mukhtar
ENRON?? (1985)

 Enron was formed by


Kenneth Lay.
ENRON:

 Enron corporation was an American


energy, commodities, and services
company based in Houston, Texas.
Formed By:

 Kenneth Lay merged the


natural gas pipeline companies
of Houston Natural Gas and
InterNorth to form Enron.
InterNorth:

 One of Enron’s primary current holder


was the Nothern Natural Gas Company,
which was formed in 1930, in Omaha,
Nebraska.
 The low cost of natural gas and cheap
labour supply during the Great
Depression helped to fuel the company’s
early beginnings.
 The company doubled in size by 1932
and was able to bring the first natuarl gas
to Minwsota.
Houston Natural Gas:

 The Houston Natural Gas (HNG)


corporation was initially formed from
the Houston Oil Co. in 1925 to provide
gas to customers.
 In 1981, the company became a large
dominant force in the energy industry
with a large pipeline network.
After Merger:

 The company was initially


named “HNG/InterNorth
Inc.”, even though InterNorth
was technically the parent.
1986

 Lay was appointed as a


chairman and CEO of Enron.
 Lay move the headquarters
back to energy capital
Houston.
 “Enteron” was suggested
afterwards its shortened to
“Enron.”
1989 (Focus Shifted)

 Over time, the firm’s business focus


shifted from the regulated transportation
of natural gas to unregulated energy
trading markets.
1990

 Skilling, an energy consultant


was hired to run a new
subsidiary called Enron
Finance Corp.
Diversification - Across Globe
February 12, 2001

 Skilling becomes CEO while


Lay stays on as chairman.
Enron Share Price Movement:
Enron Facts & Figures:

 Market Capitalization - 60 Billion $


 Price Earning Ratio - 70 times
 Price to Book Value - 6 times
What went wrong??

 Mark to Market method of Accounting & Revenue Recognition


 Hiding of Debt in the company by transferring it to SPVs
 Managing the bankers ,lawyers & Auditors
Parties Involved-

 Arthur Andersen & Co, Ignored the Accounting


Issues & was paid Weekly Fees of $1 million
( Approx)
 Jeffrey Skilling – Hired Accountants to do poor
Financial Reporting to Hide Debt
 Andrew Fastow – Mislead the BoD & Audit
Committee on Financial Issues
August 14, 2001

 Skilling resigned and Lay


became CEO again.
August 2001

 Sherron Watkins, vice


president of Enron, warned
Lay that the company could
‘implode in a wave of
accounting scandals.’
Analyst – John Olsan

 He was the only analyst


skeptical of Enron story.
 Merrill lynch fired him and
got rewarded with two
investment banking jobs worth
$50 million each.
0ctober 16,2001

 Enron announces a third


quarter loss of $618 million.
 The company letter reveals
that it overstated earning
dating back to 1997.
October 31,2001

 The company discloses that it


is under formal investigation
by the Securities and
Exchange Commission (SEC)
November 9,2001

 Enron confirms that it has


agreed to be purchased by a
rival company, Dynegy for &9
billion.
December 2, 2001

 Enron files for chapter 11


bankruptcy protection
 Enron was ranked as America’s fifth
largest company by Fortune
magazine in 2002 despite its 2001
bankruptcy filing.
January 9, 2002

 The US Department of justice


opens a criminal investigation
into Enron’s collapse.
January 10, 2002

 Arthure Anderson LLP, the


Accounting firm that handled
Enron’s audits, discloses that
its employees had destroyed
company documents.
January 15, 2002

 The New York Stock


Exchange suspends trading of
Enron shares.
January 23, 2002

 Lay resigns as CEO.


 He latter steps down from the
Board of Directors.
May 25, 2006

 Skilling and Lay where convicted of


conspiracy and fraud.
 Skilling was also convicted on one
count of insider trading and five
counts of making false statements.

Skilling Lay
July 5, 2006

 Lay died of a heart attack


while awaiting sentencing.
Impact on Shareholers
Impact on Government

 Enron’s fraud prompted the U.S.


congress to pass SARBANE –
OXLEY ACT 2002 ( SOX 2002)
which forces corporate executive to
make personal responsibility.

You might also like